They say that growth is expected to be in the single-digit levels, on the back of a better showing by the banking sector and a recovery in palm oil and crude oil prices.

RHB Research Institute head of Malaysian research Alexander Chia’s corporate earnings projection for 2019 is 3% (compared with a 1% growth forecast for 2018), mainly driven by the banking sector.

“The FBM KLCI is trading at a price-to-earnings of 17 times. The valuation is rich given that the earnings growth is weak,” Chia told The Edge Financial Daily.

“Earnings risk is on the downside,” he said, adding that the country is getting closer to the next recession.

The benchmark index dived to a two-year low of 1,635.31 on Dec 18 last year, but has since recovered, closing at 1,688.83 last Friday. Over the past one year, the KLCI has fallen by 9.07%.

MIDF head of research Mohd Redza Abdul Rahman is somewhat more optimistic.

He expects the earnings growth in 2019 to improve to 7.2%, up from a forecast 4.5% for 2018.

He said the sectors that are likely to see earnings improvement include plantation and automotive as well as consumer-related sectors such as food and beverage, banking, aviation, healthcare, insurance and construction.

“Arising from the recovery of commodity prices, we expect better results from the plantation sector with CPO (crude palm oil) price assumption at an average of RM2,280 per tonne,” he added.

The Malaysian Palm Oil Board (MPOB) expects the average price of CPO to rise above RM2,500 per tonne in 2019, from RM2,250 in 2018.

“We are also expecting a slightly higher inflation rate for 2019 at 2.2%,” said Mohd Redza.

“Therefore that is rather accommodative to auto sectors as well as consumer-related sectors such as food and beverage, banks and aviation, where distributive trade numbers are expected to be strong.”

“Healthcare (hospitals and gloves) and insurance will likely do well over the good operational numbers, improving production efficiencies as well as [benefit from the] introduction of government initiatives [like the mySalam insurance scheme]. So we continue to like especially IHH Healthcare Bhd and Tune Protect Group Bhd,” he added.

Earnings contraction seen for 4Q18

Meanwhile, following the lacklustre corporate earnings in the third quarter of 2018 (3Q18), the expectations for 4Q18 are generally low.

Most companies that have already released their 4Q18 results, such as Lotte Chemical Titan Holding Bhd and Bursa Malaysia Bhd, have indeed seen a contraction in their earnings.

UOB Kay Hian Malaysia head of research Vincent Khoo told The Edge Financial Daily that the overall corporate earnings growth for 4Q18 is seen to be subdued amid a cautious investment and consumer sentiment.

“Market expectation for the October-December earnings is quite low,” RHB Research’s Chia concurred, adding: “We are looking at very flat [number] of around 1% growth for the full-year 2018 corporate earnings in the KLCI stocks.”

Offering a similar forecast, MIDF’s Mohd Redza said: “We should not be expecting much of a turnaround of corporate results [in 4Q18] as the effects seen during the third quarter still persisted.

“Issues such as the property overhang and [declining] palm oil and crude oil prices still remained. Plus, there are also concerns over the ongoing trade war that resulted in a decline in demand for manufactured goods exports.”

The plantation sector and the technology segment related to the Apple supply chain are expected to witness earnings contraction in 4Q18, mainly dragged by the lower CPO prices and iPhone sales in China.

The oil and gas sector, particularly for the upstream segment, would still be a challenge, due to lesser contract wins and also debt issues.

The construction sector is also expected to report muted earnings for 4Q18 due to the slowdown in billings and reduced job wins.

However, not all sectors look bad, said Mohd Redza, citing consumer-related stocks in the food and beverage and aviation sectors which are expected to show better performance.

“The healthcare and rubber glove sectors should also see decent performances due to better operational efficiency and unabated demand,” he said, adding that banks should also do well on the back on decent loan growth numbers.